Advantage, Tokyo Century agree Japan battery carve-out

The size of the transaction was not disclosed, but Nikkei reported the deal is worth JPY60 billion ($545 million). The divestment is being made by Showa Denko Materials (SDM), formerly known as Hitachi Chemical. Showa Denko acquired the business last year from Hitachi Corporation for $8.8 billion, outbidding various private equity competitors.

The unit is best known as a supplier of semiconductor-related products, but there are significant growth opportunities in manufacturing carbon anode materials for lithium-ion batteries used in electric vehicles (EVs) and hybrids. Showa Denko said in a filing that this growth would be best achieved if the battery assets were spun out and placed under the stewardship of owners with expertise in the renewable energy and automotive industries.

The target business was established in 1916 by Nippon Storage Battery, which became Shin-Kobe Electric Machinery. It supplies batteries to major automotive manufacturers and telecom carriers in Japan and overseas, with a presence in Thailand and Taiwan.

Advantage expects to see steady demand, highlighting not only the EV opportunity but also rising demand from data centers and telecom operators on the back of the expansion of e-commerce, cloud services, and next-generation telecommunications networks. The GP said in a statement that the business could evolve from a “battery manufacturer” into a “power storage solution provider.” There will continue to be a business relationship with Showa Denko Materials.

Sales for the 12 months ended March 2020 came to JPY54.9 billion, compared to JPY631.4 billion for SDM as a whole. SDM is Showa Denko’s largest subsidiary by revenue, but the acquisition saw its debt-to-equity ratio rise from 0.36 to 1.84. At the same time, the parent company posted a loss for the 2020 calendar year because COVID-19 led to a reduction in shipments.

Advantage added that the target business can generate positive social impact under the UN sustainable development goals (SDGs), notably by capturing demand in renewable energy and increasing use of recycled led in the ASEAN region. The private equity firm recently launched a strategy dedicated to investing in renewable energy and related areas.

Advantage closed its sixth flagship Japan buyout fund last year at the hard cap of JPY85 billion, up from JPY60 billion in the previous vintage. For the most part, it targets a combination of corporate carve-outs and succession planning deals.

Tokyo Century, a longstanding LP in Advantage’s funds, took a 14.9% stake in the GP in 2019. The move was intended to facilitate succession planning and accumulate balance sheet capital. Tokyo Century previously collaborated with the private equity firm on the acquisition of health foods and cosmetics business Q’Sai from Coca-Cola Bottlers Japan Holdings.

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